Foto: Edijs Pālens, LETA
Discussions about tax reform have been going on for months with nothing conclusive so far.
Part of the reform seems to be an increase in the non-taxed minimum (good, albeit modestly so, for the lower incomes) and a decrease in the income tax rate from 23% to 20% for incomes below 45,000 EUR per year, i.e. some 95+% of incomes, a measure that mostly favours higher incomes.
Both measures, however, are costly in terms of lost tax revenue and a higher budget deficit. Lost tax revenue that will stay with income earners and will be spent, at least a good chunk of it, and this will stimulate economic activity. But is this what the economy needs at this very moment?
Nope.
After some years with rather humdrum economic activity, growth is actually picking up, see Figure 1 and is set to reach more than 3% this year and that is without tax reform.
